Friday, June 29, 2012

(T)hree-quarters of Danes born in the lowest-earning 20% of the population escape their plight in adulthood. Seven out of ten poor children in supposedly class-ridden Britain achieve the same feat. But fewer than six in ten Americans.

Similarly, with rags-to-riches stories. It is far less common for Americans from the bottom 20% in childhood to move into the top 20% in adulthood than it is in Denmark or in Britain. On the whole, America’s wealthy prosper while the average citizen struggles; the richest 1% of Americans gained 93% of the additional income created in 2010. The pay workers get has failed to move in line with productivity in the past 30 years. But Americans have yet to realise the extent of this tectonic shift. In a survey conducted in 2011 the average respondent thought that the richest fifth of the population had 60% of the wealth, not 85% as is the case. The respondents’ ideal income distribution would be for the top quintile to have just 30% of the wealth.

So much so that agriculture’s gift to the gulf is a “dead zone”. The excess nutrients cause algae to bloom, consuming all the available oxygen in the sea, making it hostile to other forms of marine life. Creatures that can swim away, such as shrimp and fish, do so; those that cannot, die. In the four decades since the dead zone was discovered it has grown steadily. Today it covers 6,700 square miles, an area larger than Connecticut.

The coastal wetlands associated with the Mississippi River delta make up nearly 40 percent of the total coastal salt marsh in the lower 48 states of the U.S. These wetlands are disappearing at an average rate of 25 square miles per year, about 50 acres each day. Already, more than one thousand square miles of freshwater wetlands in Louisiana have been lost or converted to other habitats. Only about 20 percent of the original bottomland hardwood forests and swamps in the lower Mississippi River valley remain today.

Some of these wetland losses are due to delta subsidence (sinking), which results in relative sea-level rise. Although subsidence is a natural process, human interference with river and sediment flow and withdrawal of groundwater have exacerbated it.

Wednesday, June 27, 2012

Republicans were in power for years with the support of the business community. Regulation of business was inadequate and a bubble developed in the economy. Eventually the bubble burst, leading to economic crisis and years of unemployment in the United States. Did this occur in:
A. After the Civil War
B. In the 1920s
C. In the 2000s
D. All of the above.

Answer: All of the above.
A. After the Civil War Republicans dominated the U.S. governments, with only one Democrat elected president. The one Democrat elected president during the period, Grover Cleveland, managed to establish the Interstate Commerce Commission in 1887, but the ICC was largely ineffective for years in part due to the conservative Supreme Court. In the 1880s, there was a railroad bubble leading eventually to a crash in the market for railroad stocks That led to the panic of 1893 which was followed by years with high levels of unemployment.
B. During the 1920s, in which Republicans dominated the U.S. government, the largely unregulated stock market experienced a bubble which crashed in 1929. That led to the Great Depression of the 1930s.
C. The Reagan revolution, led to Republican control of the U.S. Government (with only one Democratic president) between 1981 and 2009. In the 2000s the financial industry was deregulated and began to issue subprime mortgage loans and their derivatives. This led to a housing bubble, and eventually the crash of the financial industry in 2008. This has been followed by the Great Recession in which we are now living.

The only extended period of Democratic control of the U.S. Government was from the Election of Franklin Delano Roosevelt in 1932 to the election of Richard Nixon in 1968. In that 36 year period, only one Republican (President Eisenhower) was elected president. During that period, regulation of the stock market and the banks was established, full employment was reestablished, and the economy grew greatly.

Saturday, June 23, 2012

Each year about 15 million parents suffer the loss of a child younger than school-age. On June 14-15, health ministers from more than 80 countries, joined by Secretary of State Hillary Clinton and Unicef Executive Director Anthony Lake, met in Washington and issued a call to action for a global effort to fight child mortality. Their goal is for every country in the world to reduce the number of kids who die before the age of five to less than 2 percent by 2035.

I wish I had more faith that the world was doing enough to prevent this continuing holocaust. The numbers are too big for us to understand. I must believe that we would not allow millions of children to die needlessly each year were we to understand. Yet the Millennium Development Goal for child survival, the last such promise made to the world, has not been met by a long shot.

The Senate recently passed the Farm Bill (authorizing food stamps and other expenditures for five years) with a cut in food stamp funding. The House will craft its own bill, and one version would cut food stamp funding by $150 billion. The Republican controlled House seems unlikely to be generous. Republicans are also trying to gut the Obama health care reforms which are beginning to provide medical services to millions of previously uninsured children. If Congress is unwilling to fund the food and medical care our own kids need, how likely are we to provide the foreign assistance to poor kids in poor countries that they will need to stay alive?

Friday, June 22, 2012

Previous assessments have highlighted that less than a quarter of countries are on track to achieve Millennium Development Goal 4 (MDG 4), which calls for a two-thirds reduction in mortality in children younger than 5 years between 1990 and 2015.......

We compiled a database of 16 174 measurements of mortality in children younger than 5 years for 187 countries from 1970 to 2009, by use of data from all available sources, including vital registration systems, summary birth histories in censuses and surveys, and complete birth histories..........

Worldwide mortality in children younger than 5 years has dropped from 11·9 million deaths in 1990 to 7·7 million deaths in 2010, consisting of 3·1 million neonatal deaths, 2·3 million postneonatal deaths, and 2·3 million childhood deaths (deaths in children aged 1—4 years).

It would appear that more than 4 million children are now alive who would not have survived had they been born in 1990. The problem with that "success" is that many millions of children had died who might have lived had people cared, and many more children will continue to die needlessly.

Look at the kids in the photo above. Then think of the statistics. Each of those children dying needlessly leaves distraught parents. Each has suffered too much, too long!

On May 10, the House of Representatives, by a vote of 247-163, passed the FY 2013 Commerce, Justice, Science (CJS) Appropriations bill. Among the 36 successful amendments added to the bill, the House voted to prohibit the National Science Foundation from spending funds "to carry out the functions of the political science program." In addition, the House passed amendments to make the American Community Survey (ACS) voluntary and then to eliminate it altogether.

Rep. Jeff Flake (R-AZ) offered the amendment regarding NSF's political science program. A day earlier he had offered an unsuccessful amendment to reduce overall NSF spending by $1.2 billion, taking the funding back to FY 2008 levels. The new amendment, which did not seek to reduce NSF's budget, succeeded on a roll-call vote of 218-208. Five Democrats joined 213 Republicans in favor, while 27 Republicans voted with 181 Democrats to keep the program. Rep. Frank Wolf (R-VA), Chair of the CJS Appropriations Subcommittee, voted with the majority.........

Flake then found some grants with which he could mock the program. Setting himself up as a one-man merit review panel, Flake decided he didn't like a grant to Mark Borusk of Dartmouth for $700,000 to in Flake's words "develop a new model for international climate change analysis." Borusk is developing an Agent Based Modeling approach, (to study real-time interactions and decisions), that affect the outcome and implementation of international climate agreements. He will examine the "complex interplay of stakeholders at multiple levels who have limited ability to make optimal decisions and have differing beliefs, power, and incentive structures."Another grant Flake didn't like was $600,000 awarded to Lanny Martin of Rice University "to try to figure out if policymakers actually do what citizens want them to do." What Martin's project will examine is the impact of public opinion in multiparty parliamentary democracies where incentives encourage government parties to tailor policy to the wishes of narrow constituencies, whose policy views may or may not accord with those of the majority of voters. Martin seeks to study, what effect, if any, does public opinion have on democratic governance in these countries? If public sentiment changes direction, he asks, will the actions of elected officials follow?

Flake got an MA from Brigham Young University in 1987, which seems to be his background in social science. Currently he is U.S. Representative for Arizona's 6th congressional district, serving since 2001, but he is running for the Senate this year.

Clearly he does not want serious analysis of the responsiveness of our representatives to the needs of the nation nor of the way decisions are being made (or not made) to slow climate change.

Rachel Maddow quotes Andrew Sullivan and his questioning of Republican attention. The graph above was from a poll which indicates that in spite of all the evidence to the contrary, many Americans still believe that there were weapons of mass destruction in Iraq when it was invaded by the United States. I find that some 15 percent of Democrats and more than a quarter of independents still believe that false claim. It is really frightening that a significant majority of Republicans believe this.

Wednesday, June 20, 2012

The July-August issue of The Atlantic contains the 2012 "Ideas Report". One of the ideas, proposed by Barry Schwartz, is to admit students to college by lottery. The idea would be to identify all of the qualified people from the complete list of applicants, and then randomly choose from among the qualified as many as the college could accept.

I rather like the idea. As Schwartz points out, it would have the advantage that the process would not tell qualified candidates that they were not good enough for the college.

I have done a lot of selection from large lists of applications. Indeed, I once did a computer program to rank order college applicants in order to admit the highest ranking ones. I have come to the conclusion that we are seldom good enough at recognizing quality that our rankings can be assumed accurate. Assume that you get 1000 applications and will be able to accept only the 100 best. Think how unlikely any ranking procedure would be to accurately discriminate among the applications grouped around the decision point. What is the probability that the application ranked 101st is actually better than that ranked 100th? I would suppose it is pretty high.

The suggestion however opens a world of possibilities. Selecting randomly does not mean that the acceptances would be drawn with equal probability from the qualified. Lets think about 150 applicants out of the 1000 judged as qualified. It would be a pretty weak ranking system if the first ranked application was not significantly better than that ranked 150th. So maybe there should be a higher probability of admitting the first ranked than the 150th ranked applicant. One could, for example assign a probability of one that the first ranked candidate would be selected and a probability of zero that the 151st ranked applicant would be picked, decreasing the probability linearly over the range. This would be very easy to implement on a computer.

Alternatively, you could choose those ranked 1 to 110 with probability one, and then those from 111 to 120 with probability one-half. Indeed, there are many, many ways that you could choose 100 candidates from a ranked list of 150 qualified candidates.

In reality, there are a lot of things a college might want in an entering class in addition to qualified students. For example, it might not want a class with 90 women and 10 men, or it might choose to have a class with some diversity in life experiences. It might want to be sure that there was a variety of academic interests, so that it did not have a class composed entirely of drama students or math students.

The Schwartz suggestion opens the field for some good thinking about how best to select an entering class from a large number of applicants.

There are some seven billion people on earth, with some five billion telephones (many connected to the Internet), and about a billion and a half computers (most at a personal scale, but some very powerful indeed) connected by a wonderful network of wires, fiber optics, satellites and wireless. Experience suggests that the technology is getting faster and more powerful and the software is integrating people into the global ICT network more fully. It has been asked what will emerge from this cyborg like system.

Well, the distribution of wealth and income have become more unequal with the rich much richer than the poor. The Supreme Court has ruled that corporations are people, and that people can donate anonymously as much as they want to a organizations that can run political adds. Apparently millionaires are filling the coffers of those who would publicly advocate the pet views of those rich people. What do you think is emerging?

Tuesday, June 19, 2012

This map is taken from a BBC News article stating that diplomats have reached agreement on the message to be released by their principals on the occasion of Rio + 20. The article includes a slide show briefly summarizing the danger that we face in trying to continue development sustainably. I think we can be pretty sure that the area in grey in Africa in the map is also full of hungry people. Africa needs an agricultural revolution as a major part of a long term economic growth spurt. Indeed, with so many people in Sub-Saharan Africa living on the land, it is hard to see how there could be such economic growth without significant growth in agricultural productivity.

(The problem with the statement) that "The rich pay the bulk of taxes" is that it simply isn't true. It's a lie.

The true statement is "most of the long-term capital gains, and hence a fairly large fraction of revenues generated by the Federal Income Tax, are paid by the wealthy".

There are two important aspects of the true statement. First, it applies only to the FIT (Federal Income Tax). The FIT is just a fraction of Federal income -- it is roughly the same size as payroll taxes (Social Security and Medicare), to which the wealthy make an insignificant contribution. Other Federal sources of revenue include the gasoline and other excise taxes and a whole suite of other taxes, almost all of which are also borne by the middle class.

And that doesn't include state and local taxes, which are a significant component of overall governmental revenue and which tend to be borne disproportionately by the middle class. Property, sales, gasoline, ... , taxes all are middle class taxes.

Wolf goes on to point out something about the word "income". If you own a lot of stocks and other property, and the value of what you own goes up year after year, unless you sell something and realize the profit, the increase in your wealth is not income. So an Internet entrepreneur can see the value of his ownership of a company go up by $20 billion and have no income.

Incidentally, the Republicans make the argument that we should not tax millionaires at a high rate because they create jobs with their wealth. We know however that a huge amount of money is sitting idle because those who own or control it don't want to invest. If we taxed the rich, at least some of that money could be put to work thereby creating some jobs; the people with those jobs would consume more, creating still more jobs; eventually with growing demand, people would again begin to invest in new productive capacity and the Great Recession would be over. Or at least, taxing millionaires now to put the money back in circulation would be a step in the right direction.

Israel is the largest cumulative recipient of U.S. foreign assistance since World War II. To date, the United States has provided Israel $115 billion in bilateral assistance. Almost all U.S. bilateral aid to Israel is in the form of military assistance, although in the past Israel also received significant economic assistance. Strong congressional support for Israel has resulted in Israel receiving benefits not available to any other countries; for example, Israel can use some U.S. military assistance both for research and development in the United States and for military purchases from Israeli manufacturers. In addition, all U.S. assistance earmarked for Israel is delivered in the first 30 days of the fiscal year, while most other recipients normally receive aid in installments. In addition to receiving U.S. State Department-administered foreign assistance, Israel also receives funds from annual defense appropriations bills for joint U.S.-Israeli missile defense programs.

In 2007, the Bush Administration and the Israeli government agreed to a 10-year, $30 billion military aid package that gradually will raise Israel’s annual Foreign Military Financing grant from a baseline of nearly $2.55 billion in FY2009 to approximately $3.1 billion for FY2013 through FY2018. For FY2013, the Obama Administration is requesting $3.1 billion in FMF to Israel.

Note that the report is not measuring the present value of that aid. If a person had contributed $113 thousand to a retirement account over many years, the current value of that account would be considerably greater since presumably it would have accrued interest over that time. For example, if you put $3,000 per year in a retirement account every year for 40 years, earning five percent interest per year, the value at the end of that time would be not $120,000 but more than $340.000.

Israel receives an estimated $2 billion annually in private donations from American citizens, roughly half in direct payments and half via the purchase of State of Israel Bonds. These bonds receive favorable treatment in U.S. law; although the interest paid on them is not tax-exempt, Congress specifically exempted them from the provisions of the 1984 Deficit Reduction Act, which imposed additional tax penalties on other bonds with yields below the federal rate. Similarly, private donations to charities in most foreign countries are not tax deductible, but many private donations to Israel are, due to a special clause in the U.S.-Israel income tax treaty.

Because Israeli charities operate beyond the reach of U.S. tax authorities, donations from Jewish and Christian evangelical organizations are hard to monitor once they are transferred to Israel. In practice, therefore, the U.S. government cannot easily determine the extent to which tax-exempt private donations are being diverted for unauthorized purposes.

The taxes that donors to Israel avoid by making their donations to Israel can be regarded as "tax financing" or another form of government contribution to Israel and Israeli organizations.

There are other forms of U.S. government aid to Israel which are not included in the above figures, notably those which help Israeli businesses link with U.S. counterparts or export into U.S. markets.

Considering that Israel has a population of some 7.5 million, the United States taxpayer has made a huge contribution to the wealth of the people of Israel. The median net worth of American families in 2010 was $77,300. Had Israel put an equivalent to the aid it receives from the U.S. government in good investments and let the value of those investments grow normally, the current value of those investments per Israeli family would be much more than the median net worth of American families.

Monday, June 18, 2012

Foreign Policy magazine has just published its new "Failed States Report", based on its failed states index.

I find it interesting that the United States and much of Western Europe are included in the "stable" category. The red zone corresponds to my general prejudices. Good to see Canada, Scandinavia, Ireland, Australia and New Zealand in the "most stable" group.

I found this interesting. China and Brazil have very high labor participation ratios, much higher than the United States, Canada and Australia. They also have high levels of participation of women in the labor force. Developing countries have both lower work force participation and a lower portion of women in the labor force.

Of course, in many countries women are not working in the formal work force but are working very hard on child care, cooking, obtaining food. collecting wood, drawing water, etc. One way that a country can progress is by simplifying many of these tasks -- automating the home, improving infrastructure (for energy, water and sewage), getting kids in school, so that women can join the formal workforce.

I looked this up because I heard someone from India say that as soon as family income increased enough, the woman of the home would leave the workforce, and that economic growth would make workforce participation less. More educated women in India, however, want to work outside the home.

Research Universities and the Future of America presents critically important strategies for ensuring that our nation's research universities contribute strongly to America's prosperity, security, and national goals. In this video, members of the study committee that authored this report discuss the importance of our research universities and their contributions to our economy and society. They conclude by discussing the challenges and opportunities they face at a time of fiscal stress and international competition.

I worked for a couple of decades in the management of grant-making programs intended to promote innovations of value to developing nations. We were using a crowd-sourcing approach to get innovative ideas, and indeed I have personally reviewed more than 10,000 submitted ideas for developments that would benefit poor people in poor countries.

We used a system in which people submitted very short statements of their ideas and how they planned to develop them with a grant that would be quite small. A few, very experienced people would screen these submissions dividing them into three classes:

Some proponents were invited to submit a longer, better documented proposal to be peer reviewed;

Some proponents were encouraged to submit a better think piece for the next competition (because we felt there might be a suitable innovation but were not sure of that conclusion based on the original submission);

Some proponents were thanked for their efforts, but were not encouraged to go further with our program.

So I do get the point of making decisions quickly and cheaply in order to maximize progress. In thinking back on the experience, I am sure we did help a lot of people further develop good ideas, some of which made a big difference when they were widely applied. On the other hand, I realize that we were not smart enough to recognize all the good ideas that we saw, and I hope that people with those ideas did not quit when we turned them down. There is a difference between not succeeding in a trial and failing. You can recover from a mistake, especially if it is made early and cheaply. It is especially important not to quit of someone else makes a mistake about your idea.

On the other hand, I think it important to be sure that when you make a mistake early, it is really affordable. I have been listening to Colin Powell on television in the background as I post this as he discusses the decision to disband the Iraqi military after the invasion had succeeded. The United States had conquered the Iraqi military relatively cheaply, at least in terms of the number of troops we had on the ground. Then the decision was made to disband the Iraqi military and to do a massive elimination of Baath Party members from all government agencies. That in retrospect was almost surely a mistake, and it was clearly a early mistake, but it almost certainly not a cheap mistake.

The world's most famous inventors are household names. As we all know, Thomas Edison invented the light bulb, Alexander Graham Bell invented the phone, and Eli Whitney invented the cotton gin.

Except they didn't. The ideas didn't spring, Athena-like, fully formed from their brains. In fact, they didn't spring fully formed from anybody's brains. That is the myth of the lonely inventor and the eureka moment.

"Simultaneous invention and incremental improvement are the way innovation works, even for radical inventions," Mark A. Lemley writes in his fascinating paper The Myth of the Sole Inventor. Lemley's paper concentrates on the history and problems of patents. But he also chronicles the history of the 19th and 20th century's most famous inventors -- with an emphasis on how their inventions were really neither theirs, nor inventions. Here is a super-quick summary of his wonderful distillation of the last 200 years in collaborative innovation.

I would agree that even disruptive (or game changing) inventions come out of the existing state of technology and depend on improvements to achieve their ultimate value. The article cites the discovery of penicillin as serendipitous, but in fact Fleming was a professional microbiologist able to recognize and isolate the key organism due to his training in a scientific field. Perhaps more important, others licked the difficult problems of mass production of the organism and refinement of penicillin in order to make enough penicillin to actually help people.

On the other hand (as Lemley would agree), some inventions depart more from the state of the art than do others. Indeed, some inventors deserve more credit than others in bringing a technology to the point where it really benefits people. Edison deserves credit not only for the light bulb, but for inventing the industrial research laboratory, for leading in the development of many small innovations that made DC power production and distribution commercially feasible, and for commercializing products and raising public interest in buying those products.

I think that the availability of patent protection for incremental improvements of technology is important to stimulate competition among groups to produce those improvements rapidly. (Remember that Darwin worked for decades without publishing, not getting off the dime until he faced competition for the credit for the theory of evolution.) I agree with Lemley that we are probably granting too many patents, but I don't know how to judge the degree of innovation in a proposal more accurately than is done now (while doing so quickly enough and cheaply enough to accomplish the public purpose).

This would seem to be in current dollars. Remember that we had double digit inflation in the Carter administration due to the oil shocks. It seems to me that the data that would be more interesting would be the rate of growth of government spending relevant to the rates of inflation and to the rate of growth of the GDP.

It is important to realize the budget cycle of the U.S. government. The fiscal year is from October 1 to the following September 30. Presidents submit budget proposals to the Congress in January. The executive branch of government spends months prior to the submission in preparing their proposals. While an incoming president does review budget priorities after the November election, he does not then control the executive branch and is busy staffing his new administration,

The Congress after it receives the proposed budget, reviews and revises it and is to pass its budget bills by September 30th. Sometimes Congress does not get its work done in time and passes continuing resolutions to provide temporary funding to allow government activities to continue in the new fiscal year while the appropriations are finalized.

The Obama administration inherited high government spending, and more important, high levels of deficits; it also inherited from the Bush administration an economy in need of stimulus. The Bush administration in 2008 had also done the heavy lifting in preparation of the budget submitted in January 2009 (Obama's first year in office), and he faced a Republican House of Representatives in 2011 that created deadlock in the budgetary processes.

In short, I don't think the appropriations record to date is much of a basis for evaluation of Obama's fiscal policy.

He seems to have a pretty good take on the need to continue stimulating the economy to create jobs in the short run, as well as the need to cut the deficit and bring down the ratio of government debt to GDP in the next decade, and also the need to invest in education, science and technology, and infrastructure for the long run strength of the economy. Given a functional Congress he might do a pretty good job of balancing these objectives in a second term.

Yesterday the Washington Post published an article on the use of small aircraft used by U.S. intelligence agencies for surveillance across Africa. The following map is drawn from that article.

Moving from west to east across this map:

An earlier WP article refers to the 2008 coup in Mauritania related to Islamist threats to the former French colony.

In Mali al-Qaeda sympathizers recently declared an independent Islamist state in the northern half of the country.

A spokesperson from Burkino Faso describes the utility of the U.S. flights against Islamist incursions that he feared might occur from the north.

The map shows concern for al-Qaeda incursions in Niger.

Boko Haram, an Islamist movement is shown as embedded in the north of Nigeria.

The Lords Resistance Army, with roots in a Christian cult, is shown influencing South Sudan and the eastern Central African Republic (after having left north Uganda).

The Sudan, recently divided into two countries (Sudan and South Sudan) recognizing both ethnic and religious differences.

Islamic Somalia was occupied by troops from Christian Ethiopia until recently, and is still the site of fighting between militant Islamists and troops from African nations further to the south.

The map us useful in illustrating the band across Africa where the Muslim North African cultures clash with the Sub Saharan African cultures.

Incidentally, the unmanned and manned small aircraft described in the article should be useful in many civilian applications. Think how important remote sensing from such aircraft supported by appropriate data processing capabilities would be in disaster relief. That technology could support crop surveys to give early warning of crop failures and the need for food aid. It could help monitor the spread of crop diseases and pests infestations. It could provide information on desertification and deforestation, as well as flood warnings.

Thursday, June 14, 2012

“I’m expecting a big fight in Congress over charitable deductions and over the definition of charity. I’m very concerned,” says Diana Aviv, the head of Independent Sector, an American trade association for charities. President Barack Obama has made a number of attempts to limit the amount of giving that the rich can deduct from their taxable income. And Ms Aviv says state and local governments are going further than that in attacking charitable tax breaks.

The graph means that when someone in the top tax bracket in the United States makes a gift of $1 to a charity, he gets a tax reduction of $0.38. In other words, a 62 cent contribution by a rich man is matched by a 38 cent contribution from the government in what is called "tax financing". Since the taxes that are actually collected still have to pay for the functioning of the government, it is really the taxes the rest of us are paying that pay the piper.

I suppose that there are a couple of justifications for this system. The one we don't like to think of is that rich people have lots of influence on government and use that influence to get tax breaks, including tax exemptions that multiply their gifts to their favorite causes.

The better one is that 38 cents of foregone taxes encourages 62 cents of matching contributions from someone else, resulting in a dollar donation to something which benefits the public. That of course requires that organizations which can except tax deductible contributions do in fact benefit the public. An organization that spends most of the donated money to collect the donations may in fact not provide more or better public services than the government could provide itself with its share of the donation.

Moreover, how many people really want to finance the opera, the polo team, or the donation of still another expensive painting to a museum. It would seem that the rules which organizations are appropriate for tax deductible donations might well be revised to reflect public opinion on what is suitable for government tax financing.

Lets think about that painting for a bit. A rich person may have bought it from a ritzy gallery a couple of decades ago, and seen it the value of works by the artists increase radically over the interval. When the person donates the painting, its value is set as the current gallery value, not what was actually paid. Moreover, the painting may have lost interest to its owner years before and have been taking up space in a closet. The gallery may in its turn, store the painting in a vault not putting it on display for the public edification. Yet the government gives the full tax deduction.

I would suggest that in our country that is built on the basis of separation of church and state, government tax financing of places of worship may be inappropriate. This is especially true if officials of religions are bending the rules and using the authority stemming from their religious organizations to affect elections or to lobby for causes.

Of course, I don't suppose that the political process will succeed in making any major changes in our tax codes to make tax financing more supportive of the public good.

Indeed, I suppose the situation will get worse rather than better. I assume that we will be increasing the top tax rates on the rich, at least by letting the Bush tax rate reductions expire. That means that for every dollar donated by a rich person, that person will get a larger tax exemption -- or that there will be a larger implicit tax financing for that person's charity.

My history book club met last night to discuss To End All Wars: A Story of Loyalty and Rebellion, 1914-1918 by Adam Hochschild. The discussion triggered a link in my mind to my original training as an engineer, leading me to a new understanding of the cause of World War I. I will try to share that understanding if you bear with me. First I will tell you something about control theory, then I will provide a metaphor, then discuss the causes of the war in terms of that metaphor, and finally deal with how people tried to prevent future world wars.

Control Theory

Half a century ago as an engineering student I took a couple of courses on control theory. The courses provided tools to assess under what conditions a complex system would operate stably and under what conditions it would become unstable.

Stability is achieved by measuring the current state of the system, projecting its future evolution, and providing corrective inputs to keep it on path. Instability occurs when it becomes impossible to provide those corrective inputs.

The tools can be applied to a proposed system design. The results can then be used to enable the engineer to tweak the system design to make it stable under desired conditions, or to set boundaries on operating conditions so that it never enters the unstable region.

Think About Automobiles
The driver controls a car using the gas and brake pedals and the steering wheel. Most of us can drive the family sedan safely through the streets as long as we stay under the posted speed limit.

A high performance race car is different. Much more powerful than the street car, it is capable of much higher speeds. The race car can accelerate faster and it can brake faster, its steering is far more sensitive. I suppose most of us could still manage to drive a race car around the track safely if we did so slowly. Were we to try to compete in a professional auto race we would soon over brake or under brake, accelerate too much or too little, over steer or under steer. We would lose control and crash.

The cadre of world class race drivers are special people, with great reflexes, well trained to racing. Their reflexes and training allow them (usually) to drive the course both very fast and safely.

The Cause of the War

There were military industrial complexes in the past. However, military industrial complexes had become far more powerful, capable of more destructive campaigns throughout the 19th century. Consider that of the British Empire . By 1910, the British government could call on troops not only from the British Isles, but also from India, Australia, New Zealand, Canada, South Africa and other colonies. It could use the telegraph to call them up quickly and could transport them with unprecedented speed by railroad and steam ship. It could equip them with artillery, machine guns, and repeating weapons, and supply them with food and ammunition in quantity in the field of battle.

It was not only the British Empire that had a powerful military industrial complex. So too did Germany, the Austro-Hungarian Empire, Russia, France, Italy, the Ottoman Empire, and the United States.

Individual states had been so threatened by the growth of the military industrial complexs of other states that they had developed complex systems of assistance treaties. If Serbia were attacked by the Austro-Hungarian Empire, Russia would have a treaty obligation to come to its support. If Russia attacked the Austro-Hungarians, Germany would have an obligation to war with Russia. France would then support Russia. When Germany attacked France through Belgium, the British Empire came to the aid of France and Belgium. And so it went, until two huge military industrial complexes were engaged in deadly combat -- each composed of the military forces of several empires and states and their combined industrial support.

How were these two multinational military industrial complexes controlled? We have to look to the political, economic and military institutions. The international institutions were weak, as shown by the fact that countries in some cases defected from their treaty obligations joining the other side. Most of the countries were ruled by monarchies supported by strongly hierarchical aristocracies. Thus the political institutions tended to put people in political power by institutionalized rights of inheritance rather than by seeking out the most able in the country and training them for power. Indeed, this was largely true of the military as well. Wealth was a path to political and military power as well as economic power. The result was that the European leaders in the second decade of the 20th century were incapable of fully understanding the situation that they faced, still less capable of projecting its evolution, and also incapable of providing the leadership necessary to introduce mid-course corrections.

During the previous century there had been many wars, but they had been relatively contained -- each involving few countries and/or limited fields of battle and/or relatively brief periods of actual conflict. In those circumstances the institutions proved adequate to contain the magnitude of the war and thus to prevent the wholesale slaughter and economic disaster that characterized World War I. Europeans were left with the incorrect perception that their institutions were sufficient to stably control the global military industrial complex.

Between the Napoleonic Wars and World War I, the control institutions sufficed to manage the less powerful military industrial complexes and avoid catastrophe, as most people manage their family autos to avoid crashing. World War I began when the vastly more powerful military industrial complexes proved unstable, transforming the assassination of an archduke by a single member of a splinter political group into a world war. The chain of events that occurred so fast and so poorly understood by the leaders of the two coalitions that those leaders proved unable to prevent the catastrophe.

The Aftermath

Shocked by the horror of the war, people made massive changes, many in an effort to prevent any future world war. The monarchies of Russia, Germany, the Ottoman Empire and the Austro-Hungarian Empire fell and were replaced by institutions intended to be more responsive to the needs of their peoples. Military forces were reduced by treaty. The Austro-Hungarian and Ottoman empires were broken up, territory was taken from Germany, and the industrial capacities of the losing countries were reduced by repatriations forced in the treaties ending the war (in theory reducing their ability to start new wars). The power of the aristocracies was greatly diminished. The League of Nations was created in an attempt to provide an international mechanism for mediation of disputes.

Unfortunately, within a quarter of a century these actions proved to be inadequate and World War II pitted two even larger multinational military industrial complexes against each other, killing many more people and proving even more destructive to peoples in many continents.

A Final Thought

I suppose that there is a lesson here that can be applied quite broadly. Modern history is characterized by the evolution of more powerful, bigger and more complex systems. Experience over years in which such a system is successfully controlled to achieve its human purposes does not guarantee that it will remain stable.

There is the old story of the man falling from the observation tower of the Empire State Building who was heard to say on passing the 10th floor on the way down, "so far, so good". The fact that there has not been a recent crash does not mean that the system is still under control.

Consider our financial systems. While they have evolved to manage more and more resources and provide more and more services, they have repeatedly escaped control. Indeed, we call the results of such escapes "crashes". We not only saw the stock market crash of 1929 and the crash that caused the Great Recession in 2007, but many other historical instances in which financial systems went unstable.

Perhaps environmental change is another such circumstance. It has been said that the history of mankind is written in shifting sands. That is, many societies in the past grew in their impact on their environment until that environment could no longer support their demands; eventually those societies crashed and their sites are marked today by desert or wilderness. Our population has grown, our technology had become more powerful, and our society has harnessed such power that mankind's footprint on this earth is now easily seen from space. The increasing global production of greenhouse gases is now changing the global climate and it seems clear that unless greenhouse gas production is controlled we will see catastrophe by the end of the century. Still some say, "so far, so good". And climate change is but one way in which mankind is damaging the environment.

Wednesday, June 13, 2012

Thanks in part to the UN’s blue helmets, Africa is at its most peaceful for decades. But the job is not yet over—and can be done even better.

We read about the Russians and Chinese blocking international action to get rid of the government of Syria and tend to assume that the U.N. is not useful. This story suggests that while it could surely deploy better trained, more effective troops, those that it is deploying have helped to defuse conflict in a number of African countries.

Ask the people in the countries restored to some kind of peace how much better their lives are as a result, how much they appreciate what the international community has done to help!

Let me first distinguish "science for diplomacy" from "diplomacy for science". Many of the science for diplomacy initiatives of the U.S. Department of State were bilateral agreements between governments to promote collaboration between scientists from the two countries. Typically these are negotiated on the assumption that scientists can collaborate on politically neutral topics (such as public health or astronomy) even if their governments are not getting along all that well, and that having some people talking together can not but help.

Sometimes diplomacy is needed to allow science to be conducted. For example, oceanographers pushed for the development of the UNESCO Intergovernmental Oceanographic Commission to facilitate the processes of getting approval from governments to conduct international oceanographic research such as research voyages that passed through the ocean territory of several different countries. Similarly, there is a border health agreement between the United States and Mexico that was negotiated diplomatically to allow, among other things, health research across the long border between the two countries.

Of course, advances in science and technology underlie much of the agenda of diplomacy. Since the creation of the atom bomb, a major focus of diplomacy has been the prevention of nuclear war and the reduction of the proliferation of atomic weapons. As Rio + 20 is bringing us back to think about sustainable development it is worth noting that without the development of space technology and the information on the global environmental problems gained from remote sensing, the "global systems problems" would not be on the agenda of our diplomats to nearly the extent that they currently are.

I recall doing an evaluation of the U.S. Telecommunication Training Institute some years ago. USTTI core funding came from U.S. telecommunications companies and, more importantly, it was able to connect people in developing nations with training opportunities offered by corporations in the United States without charge. They did so because the marginal cost of offering a place in an existing course or a new session of a course offered regularly was nominal, and the corporation gained benefits from the international connections that it so gained. Importantly, the idea for USTTI as an initiative came from the U.S. delegation to the International Telecommunications Union -- an organization that makes decisions that are economically important to U.S. companies. The delegation wanted something to offer at an upcoming ITU meeting for short term impact. I discovered however, that the long term result of the program was that increasing numbers of delegates from other nations to ITU meetings had been trained in the United States and as a result an increasing portion of the participants in such meetings better understood and accepted the technical rationale behind U.S. positions.

The United States provides educational opportunities to hundreds of thousands of foreign students each year, many in science, technology and engineering. I recently heard that U.S. diplomats negotiating with their Chinese counterparts on international economic issues are having a relatively easy time since so many of those Chinese negotiators have graduate degrees in economics from the best American universities. The negotiators on both sides share a common language from Economics and a common grounding in economic theory.

I would predict that technology acquisition will play a more important role in U.S. diplomatic efforts to promote our economic efficiency. In the aftermath of World War II the United States produced half the world's goods and services and was not only the world's foremost producer of new technologies but had acquired a great deal of technology capability from Europe, much in the form of refugees from the war. I feel that five percent of the world's population producing half of its goods and services and having even greater technological domination is inherently unstable. Clearly the European Union and Asian nations are achieving some parity with the United States. Thus I predict that our diplomacy should now be working hard to help U.S. producers obtain technology from abroad and that that function should be increasing in the future.

U.S. foreign policy tends to focus on security, economics and somewhat on global systems problems. However, it also focuses on humanitarian efforts, especially those to reduce the worst aspects of poverty. Science and technology have been significant elements of U.S. foreign policy for decades. Indeed, one of the most successful elements of the Point Four program created by the Truman administration in the 1940s involved bringing Europeans to see American factories to learn about U.S. technology and technological practice.

I would point out that scientific programs with humanitarian purposes can also yield political benefits. I was privileged to manage the U.S.-Israel Cooperative Development Research Program which financed Israeli scientists to cooperate with counterparts from developing countries on research with humanitarian purposes, but which also helped build linkages between Israel and those developing nations. So too, I helped manage the Middle East Regional Cooperation Program which helped finance scientific linkages between Israel and its Arab neighbors on problems of mutual interest. Often these projects were managed through a U.S. scientific organization that reduced the political sensitivity for Arab scientists cooperating with Israelis. While the program had scientific achievements (such as the first demonstration of the importance of Hepatitis C in Egypt), it also broke new ground in understanding among the participants.

I recall that the U.S. Naval Medical Research Institutes in developing countries not only did medical research of benefit to the American military, but also were so valuable to the countries in which they worked that they were sometimes left as the most visible U.S. presence in countries with which we were at odds.

I have been especially interested in multilateral S&T diplomacy as well as bilateral. UNESCO has a significant program in the sciences and has been especially valuable in the support of international scientific professional organizations, but it has also help create international centers such as CERN and SESAME. However, WHO, FAO, and other mission agencies of the United Nations system have significant scientific and technological programs -- programs which are important to U.S. foreign policy interests. So too do the international financial institutes such as those of the World Bank.

I welcome the creation of the new AAAS journal on the important topic of science and diplomacy.

Tuesday, June 12, 2012

A new book by Dan Ariely, “The (Honest) Truth about Dishonesty”, may reinvigorate the discussion. Mr Ariely is a social psychologist who has spent years studying cheating. He also teaches at Duke University’s Fuqua School of Business. He has no time for the usual, lazy assumptions. He contends that the vast majority of people are prone to cheating. He also thinks they are more willing to cheat on other people’s behalf than their own. People routinely struggle with two opposing emotions. They view themselves as honourable. But they also want to enjoy the benefits of a little cheating, especially if it reinforces their belief that they are a bit more intelligent or popular than they really are. They reconcile these two emotions by fudging—adding a few points to a self-administered IQ test, for example, or forgetting to put a few coins in an honesty box.

The amount of fudging that goes on depends on the circumstances. People are more likely to lie or cheat if others are lying or cheating, or if a member of another social group (such as a student wearing a sweatshirt from a rival university) visibly flouts the rules. They are more likely to lie and cheat if they are in a foreign country rather than at home. Or if they are using digital rather than real money. Or even if they are knowingly wearing fake rather than real Gucci sunglasses. They are more likely to lie and cheat if they have been stiffed by the victim of their misbehaviour—companies that keep customers in voicemail hell are frequent victims. And people are more likely to break their own rules if they have spent the day resisting temptation: dieters often slip after a day of self-denial, for example.

I am not sure that deciding that a treat at the end of a day of dieting would be "dishonest", but I take the point.

I would suggest further that lying and cheating are a slippery slope. The more you do it, the easier it is to do it again. Strict probity has the advantage of helping one to remain honest.

Sunday, June 10, 2012

A new report from the NSF shows a flattening of Science and Technology graduate enrollment in the United States. I wonder whether the ratio of engineering to science graduate students is appropriate. Of course, a lot of engineers go to grad school part time while working in the profession.

A new report from the Institute of Development Studies has provided this information on where the poor lived in 2008, according to two standards -- those who lived on less than $1.25 a day (1.2 billion people) and the larger number of those who lived on less than $2.00 day (2.4 billion people).

The countries in shaded rows in the table were classified by the World Bank as low income countries in 1990 and as lower middle-income countries in 2012. The Philippines are and have been classified by the World Bank as a lower middle-income country. Brazil is and has been classified as an upper middle-income country.

Most of these countries have sufficiently high GDPs to significantly help their own poor if they choose policies to do so.

Roughly half of the world's poorest people live in China and India.

The report also mentions that 18.4 per cent of world poverty is concentrated in fragile low income states such as the Democratic Republic of the Congo (DRC). These fragile, low income states present a serious problem for donor agencies seeking to combat the worst aspects of poverty.

According to the National Assessment of Educational Progress, states that are much worse than the national average in achievement of 8th grade students include California, Nevada, Arizona, New Mexico, Arkansas, Louisiana, Mississippi, Alabama, Georgia, South Carolina, and West Virginia. I doubt that it is the high level of solar radiation that keeps these kids from getting even an average U.S. education.

If we let a large portion of our kids fall behind in education, the economy is not likely to do well in an increasingly global economy that those kids will face for the next half century.

The tenth parallel of the title roughly marks the southern boundary of Muslim expansion. Christian evangelists created a chain of missions across Africa as part of the imperial expansion of Western powers, halting the expansion of Islam into Africa. The Western imperial conquest of the Philippines left that island chain divided with Christians in the north and Muslims in the South, until the American occupation in the 20th century began a Christian colonization of previously Muslim areas. Indonesia and Malaysia have Muslim and Christian communities left over from history, as well as ethnic groups that hold neither faith, Griswold describes these facts of life on or near the tenth parallel in order to enable the reader to understand the historical context of the present from which she reports.

People are poor in the places Griswold visited. In many places, their poverty is exacerbated by environmental degradation. They are marginalized from political as well as economic power. Frequently they are tribal. Often barely noticed by the outside world, they fight and kill each other (and die in large numbers from hunger and disease). Griswold describes place after place in which atrocities have taken place in these distant communities. In some cases Muslims kill Christians and in others Christians kill Muslims.

Griswold describes competition for believers between Christian evangelical missions and Muslims equally focused on converting others to their faith. Both Christians and Muslims seek to retain the members of their faith against conversion to the other faith.

While the Christian-Muslim fault line is the most visible and important, the Muslims are fractionated into competing factions as are the Christians. Christian missionaries in large numbers go forth from the United States and South Korea (countries that are rich enough to support foreign missions) and as Griswold points out U.S. foreign policy supported faith-based people and programs, explicitly during the Bush administration. Money flows from the oil rich Gulf states to support Muslim causes.

Perhaps I misread Griswold, but I think she implies in the book that often the fighting is fueled by competition for power and wealth. Certainly this seems to be the case in oil rich areas in Sudan and the Philippines from which she was reporting. In other cases, people are being forced from their traditional homes by environmental degradation and fight with the current residents in the areas to which they are moving.

I came away from the book with a strong feeling that few of the people that Griswold interviewed had any deep understanding of their faith. While some of those working to convert others to their religion had studied the texts and theology of those religions, many seemed not to have a clue. The faith of many of the "converts" was like that of the peasants who were deemed converted when their master was converted; for others the faith seemed to be childlike belief than public acceptance of a label would guarantee admittance to paradise; still others seemed to join a religion as they would become fans of a sports club. Still, their faith gave many comfort as they faced very difficult lives.

Griswold herself seemed non-evangelical, but with a deep respect for the sacrifice of those who devoted their lives to evangelical work, especially those who did so in difficult and dangerous situations. On the other hand, she seems to believe that the inadvertent effect of the missionary work was often to exacerbate local hatreds and lead to violence and destruction.

I think most Americans would learn something important about the "clash of cultures" from reading this book with its depiction of real problems of poor people in Africa and South-East Asia. However, the book has scenes that should shock almost all readers. Those who strongly support evangelical efforts of either Christians or Muslims may find the book so dissonant with their preconceptions as to be rejected out of hand. Still, since the book is well organized and well written, most will read it through and benefit from it.

Wednesday, June 06, 2012

It shows very high adult mortality from non-communicable diseases in the former Soviet Union and large swaths of Africa.

For those not concerned with U.S. health services, note that our adults of working age die more frequently than do those in Canada, Australia, Sweden and Norway, not to mention France, Spain and Italy. Those people have socialized medicine! We do not!

Note that medical insurance become common as a benefit offered by big companies to attract employees in the labor shortages during World War II. People here are still unwilling to leave jobs that offer health insurance and when they don't have health insurance look for jobs where they acquire it through their employer. Is is surprising that the people who benefit most from our corporate culture tend to oppose health insurance as a right guaranteed by government?

The United States ranks low among OECD countries in international tests of educational achievement. That is a matter of concern in an increasingly globalized world. As the following graph shows, performance of kids on these tests is strongly determined by socio-economic status. Kids from poor neighborhoods don't do as well as kids from rich neighborhoods.

What can we do about the situation. It seems to me that good teaching is important. Good teaching of course comes from well motivated, capable teachers. They have to have small enough classes and enough time with those classes to teach well.

Is testing important. My experience in teaching suggests that it is important to find out how well the students are doing. It also seems to me that students learn to perform well be performing and getting feedback as to how well they have performed. Tests can be opportunities for student performance and feedback. On the other hand, poorly designed tests are not going to help the kids nor the teachers.

Based on 2007 test scores the trend is weaker: NC is 47th; TX is 45th; SC is 39th; GA is 26th; VA is 25th. These rankings come from a composite of ACT and SAT scores among high school graduates, which is a measure that accounts for different participation rates.

"Comparison of standardized test scores and degree of teacher unionization in states found a statistically significant and positive relationship between the presence of teacher unions and stronger state performance on tests. Taking into account the percentage of students taking the tests, states with greater percentages of teachers in unions reported higher test performance."

I suspect that there is an underlying variable here. There is something about the liberal culture in states such as Maryland, Massachusetts and New York that results in both good schools and strong teachers' rights. I suspect that there is something about the conservative culture in North Carolina, Texas, South Carolina, Georgia and Virginia that results in both kids doing poorly on tests and few teachers' rights. It might hark back to Civil War times, when the first group of states sided with the Union and against slavery, and the second group formed the core of the Confederacy.

Why do people in the U.S. earn so much more doing the exact same jobs as people in India? One reason is infrastructure: physical infrastructure such as (comparatively) good road and electricity networks, alongside economic infrastructure including a (somewhat) robust banking system. Institutions such as a (passable) set of commercial laws and (not completely capricious) regulatory regimes are another factor. The higher quality of these public goods allows the same amount of effort by the same quality employee to create considerably more value in the U.S. than in India.

So the overwhelming explanation for who is rich and who is poor on a global scale isn’t about who you are; it’s about where you are.

Charles of course recognizes that people are more productive on average if more capital has been invested in their productivity -- for example, if they are better educated and provided with better equipment. His point is that people are also more productive if they work in a society with more social capital and better infrastructure.

I would note that it has been estimated that women on the average earn five to seven percent less than men when equally qualified and working in comparable jobs. Presumably that is a cultural difference, not a difference based on place of work or supporting institutions.

This is outside of my areas of competence, but here is a thought. In discussions of international security policy we hear about threats from state actors and non-state actors. It seems to me that non-state actors must be found within states, so that we need to consider a couple of properties of states in which non-state actors are found:

the strength of the state;

the support within the state for non-state actor threats to our security.

There are very different responses to a threat that comes from Germany versus one that comes from Somalia, and both those responses should be different than the response to a threat that comes from Pakistan.

It seems to me that the U.S. response to a threat from a terrorist network would be quite different that that to a threat from a state. So too, the response to a state threat should depend on:

the magnitude and nature of the threat;

the strength of the state.

The appropriate response to the threat we now face from Iran must be different that that which was appropriate response to the threat posed by the fascist states of Europe in 1940.

Military preparedness policy must include preparedness to deal with non-state actors of various kinds in various states as well as to deal with state actors. I am reminded that the United States entered World War II late, having taken some years to build its military capacity. The country need not be fully prepared to undertake wars as long as it begins in time to meet a military challenge.

It seems to me likely that the security threat to the United States posed by Gaddafi's Libya was different than that posed by Assad's Syria, and the implications of direct action in the two countries were very different. I am uncomfortable with a one size fits all foreign policy, and more comfortable with a cautious than an adventurous foreign policy.

Another thought

We fought the wars in Iraq and Afghanistan without a draft. As a result, the military burden was shared narrowly, and a few people suffered a great deal. Viet Nam demonstrated that a citizen army tends to generate a lot of opposition to a war in a country we don't understand very well in support of a foreign government we don't like very much.

We not only did not have a citizen army in those wars, we did not levy taxes to pay for them. We said our kids and their kids can pay the bill some time in the future. Thus there was not even immediate financial pain for the vast majority of the population to cause us to think about the war.

These were wars fought in large part by commercial firms -- supporting troops, providing security to civilians, and conducting nation building services. Thus these functions were not provided by people conscripted by the government to serve the nation at low cost, but rather by firms which saw the war and occupation as means of earning profits.

The Bush administration thus had eliminated many of the factors causing opposition to the wars in the short term while building support for the wars from the commercial sector. Maybe that is good policy for allowing necessary wars, but very dangerous policy for wars that we really don't need to fight.

There is a good article by Joseph E. Stiglitz, Nobel laureate in Economics, in The Atlantic. He shows why the increasing concentration of income and wealth the hands of the top one percent of American families is a problem.

It causes "the consumption problem". Poor people spend a greater portion of their income on goods and services; they need to in order to get by. As a result, the greater the portion of the income that is captured by the rich, the smaller the portion that is recycled into the economy. We saw this process in the 1920s and the 2000s before the crashes. (The economy can appear to grow if there is a bubble that makes ordinary people feel richer than they are and thus go into debt to consume. When such a bubble bursts, there are major economic problems. It makes me wonder if there may be some hidden causality in which a consumption problem leads to bubbles, bursts, and crises.)

It causes "the rent seeking problem". The rich get richer by drawing income from rents. The rents include not only rent from real property, but also from the power to appropriate funds from others. Basically rent seeking transfers money from those with less power to those with more power, and in our society, from the poor to the rich. This is what Stiglitz describes as the problem with rent seeking: "Rent seeking makes nothing grow. Efforts are directed toward getting a larger share of the pie rather than increasing the size of the pie. But it’s worse than that: rent seeking distorts resource allocations and makes the economy weaker. It is a centripetal force: the rewards of rent seeking become so outsize that more and more energy is directed toward it, at the expense of everything else."

It causes "the fairness problem". The demand for fairness is a deep psychological phenomenon characterizing American society as a whole. If people don't feel that they have a fair break in the economy, they tend to work less. Indeed, widespread feeling that the country is not treating people fairly can lead to political unrest. It is clear now that many Americans feel that the economy is increasingly unfair due to the increasingly visible wealth and conspicuous consumption of the one percent, and the long term economic stagnation of the poor and the middle class.

I would suggest that the economy functions better when buyers trust sellers and sellers trust buyers. Indeed, there are a lot of people that trust is a key part of "social capital" -- that a society invests in building trust in its economic and political institutions, and they work better as a result of that investment, yielding long term benefits to the public. If people feel that the society is not fair and that the rich are using their power to take money from the rest of us, how much trust are they likely to feel in "the system"?